SAN DIEGO – A newly released report by a law firm investigating San Diego's flawed financial reporting practices concludes there is insufficient evidence of intentional wrongdoing on the part of city employees.

The report is the second by Vinson & Elkins, which was hired by the city last year after errors were discovered in bond disclosure statements related to the debt-ridden San Diego City Employees' Retirement System.

"The record does not indicate that any city employees, including its senior officers, suspected at any time that they were engaging in conduct that might be prohibited by law," the report states.

Vinson & Elkins' 118-page report suggests that while the "inaccuracies and omissions" were unintentional, it doesn't mean there were not violations of federal securities laws by certain city "gatekeepers."

Laws can be violated through "negligent conduct," according to the report, which was provided to reporters by the city attorney.

"The most damaging insight to come from this phase of the investigation is that certain officials consciously avoided bringing negative information to the attention of the bond rating agencies," the document states.

The flawed bond disclosures, and a shortfall of at least $1.4 billion in the retirement system, are the subject of investigations by the Securities and Exchange Commission, U.S. Attorney's Office and the FBI.

Vinson & Elkins' report directs "substantial blame" for the financial reporting "deficiencies" on Ed Ryan, the former city auditor, and Terri Webster, the former assistant city auditor.

It says both "had knowledge of facts indicating that certain risks to the SDCERS funded status were not properly reflected in city disclosure, but failed to act in a timely manner to remedy these omissions."

Former City Manager Michael Uberuaga, former Deputy City Manager for Finance Patricia Frazier and former City Treasurer Mary Vattimo, also "failed to act with the standard of care to be expected of individuals in their positions," according to the report.

The report also says that the mayor and council during 2002-2003 "did not act with reasonable prudence in continuing to authorize bond offerings without making further inquiry into the status of the city's pension system."

The city's outside accounting firm, KPMG, rejected the report, saying it did not go far enough to address potential unlawful activities by city employees, and withheld its audit of the city's 2003 finances.

Without the audit, San Diego hasn't been able to restore its diminished credit rating and reenter the bond market.

Vinson & Elkins' second report was intended to satisfy KPMG's concerns, but will likely not be enough to secure the audit.

KPMG has also requested that the pension board waive its attorney-client privilege so federal investigators can secure sought-after documents. The board has repeatedly refused to grant that waiver.

City Attorney Michael Aguirre called the second report a "whitewash," saying it did not adequately address the role of the council and mayor in forging agreements in 1996 and 2002 to increase retirement benefits while at the same time underfunding the pension system.

"This is what a defense attorney would put out to get a client off the hook," Aguirre said at an afternoon news conference.

Aguirre alleges that the benefits were granted illegally and contributed to the pension debt. He wants the benefits rolled back.

"I've informed both the SEC and the U.S. Attorney's Office that the City Attorney's Office has disassociated from, does not support, does not agree, with the report," he said.